Since mid-August, several PTA factories have announced maintenance plans for September. Crude oil prices have bottomed out and have broken upwards. Demand from downstream peak seasons has gradually materialized. With multiple positive supports, PTA futures prices have exceeded previous highs. The main TA2401 contract once touched 6,200 yuan/ton.
Expectations for the peak season are gradually realized, and the demand side shows resilience
Since August, terminal demand has improved month-on-month, autumn and winter fabrics have begun to be stocked, and polyester and weaving operations have increased steadily. From the perspective of sales, shipments and inventory structure, autumn and winter clothing fabrics are still better than home textile fabrics. As of early September, the comprehensive operation of texturing in Jiangsu and Zhejiang was 78%, an increase of 1 percentage point from the previous month; the comprehensive operation of looms in Jiangsu and Zhejiang was 72%, an increase of 4 percentage points from the previous month; the comprehensive operation of printing and dyeing in Jiangsu and Zhejiang was 77%, an increase of 5 percentage points from the previous month.
Figure 1 Average inventory of polyester filament
Terminal yarn and gray fabric inventories have been reduced slightly, factories have staged centralized procurement, and polyester production and sales are mainly based on pulse-type increases. At the end of the month, polyester factories had price reduction promotions. The equity inventories of POY, FDY, and DTY in Jiangsu and Zhejiang polyester factories were at 11.6, 14.8, and 31.8 days respectively, down 3.6, 1.2, and 0.2 days respectively from the beginning of the month. The short fiber inventory was at 12 days, down 1.6 days from the beginning of the month. sky. Polyester product inventories remain neutral overall.
Figure 2 Domestic polyester load
From June to July, the downstream demand is not weak in the off-season, and the polyester load has remained at a high level of over 92% for a long time. The impact of the Asian Games on downstream and terminal construction in September and October may be limited. The polyester load is expected to remain at a high level of around 90% in September.
In terms of new production capacity, it is planned to add 8.4 million tons of polyester production capacity this year, with the production capacity growth rate rising to 11.7%. At present, most of the equipment has been put into operation, and nearly 2 million tons of equipment will be put into operation one after another. Since the beginning of this year, polyester production has hit new highs repeatedly, reaching 6.09 million tons in August. From January to August, polyester production reached 42.69 million tons, an increase of 4.71 million tons year-on-year, an increase of 12.4%.
In terms of polyester exports, polyester exports declined month-on-month in July, mainly due to the imminent expiration of India’s BIS certification. Subsequently, Indian officials announced that they would postpone the implementation of BIS certification for polyester filament FDY (IS 17261:2019) and POY (IS 17262:2019) to October 5, 2023. There are certain restrictions on delivery time for Indian orders. In order to meet the shipping schedule, most orders require delivery before mid- to late August. It is expected that the export volume of polyester yarn in August will reach the highest level in the year, and the export volume in September may decline slightly.
PTA’s low processing fees force increased factory maintenance
Since mid-July, PTA spot processing margins have continued to decline, from a minimum of around 400 yuan/ton to an extremely low level of 10 yuan/ton in mid-August. Mainly because the strong gasoline and diesel prices during the peak consumption season have supported the prices of crude oil and naphtha, which is good for PX costs. Secondly, some overseas PX factories have supply gaps and replenishment needs. In addition, some manufacturers and traders continue to buy goods to support the price of PX. Thirdly, since mid-July, with the restart of multiple maintenance equipment, the domestic PTA load has increased from 75% to 82.2% in late August. The gradual increase in supply has caused PTA to rise less than the increase in cost-end prices. In early August, the price trends of PTA and cost-end products even diverged periodically.
Due to the pressure of losses, some major PTA manufacturers sold raw materials on-site in mid-August to suppress PX prices. Hengli, Honggang Petrochemical, and Energy Investment PTA units announced maintenance plans for September. Coupled with the end of the declaration of Hong Kong, PX prices fell significantly, and PTA spot prices fell sharply. The processing difference was once repaired to 337 yuan/ton. However, the PTA load is still at a relatively high level of over 80%. As crude oil and PX prices rebound, the PTA spot processing gap has fallen back to around 220 yuan/ton again. Against the background of rapid expansion of production capacity, it is expected that the PTA spot processing gap will remain at a low level for a long time, and factories can only achieve phased repairs of the processing gap by actively reducing supply.
Judging from the recent PTA device plans, Hengli’s 2.2 million tons, Honggang 2.5 million tons, and Nengtou 1 million tons devices will be inspected one after another in September. There is uncertainty in the inspection plan of Yisheng’s two sets of 4.2 million tons devices. Jiaxing Petrochemical The 1.5 million ton device plans to restart in the near future. Taken together, the impact of the actual new maintenance volume may be limited.
Figure 3 PTA social inventory
The average domestic PTA load in August was 85.5%, a steady increase from the previous month. Hengli Huizhou’s 2.5 million tons of new PTA equipment is included in the total production capacity. In August, PTA output reached 5.73 million tons, an increase of 190,000 tons from the previous month. The downstream polyester production start-up remains at a high level of around 92%. According to comprehensive calculations, PTA accumulated about 65,000 tons in August. Taking into account the PTA maintenance losses in September, and the fact that the start-up of polyester production may be affected by the Asian Games, which may have slightly dropped to around 90%, and both supply and demand have dropped, it is expected that PTA will maintain a loose balance in September.
International oil prices break through upward, cost support strengthened
In early September, Saudi Arabia announced that it would extend its voluntary production cuts of 1 million barrels per day for three months to the end of the year; Russia announced that it would extend its oil export cuts by 300,000 barrels per day until December. Previously, the market generally expected that Saudi Arabia and Russia would extend production cuts until October. The official announcement of production cuts was greater than market expectations, showing that OPEC’s production cuts will support prices.Heart. Institutions estimate that as production cuts are extended, the supply and demand gap in the crude oil market will reach 1.5 million barrels in the fourth quarter. Many institutions have raised their crude oil price forecasts for the fourth quarter. International oil prices rose overnight, with Brent oil breaking through the 90 mark, setting a new high of November last year.
From a macro perspective, the U.S. core PCE price index recorded an annual rate of 4.2% in July, in line with expectations. The seasonally adjusted non-agricultural employment in the United States in August was 187,000; the unemployment rate was 3.8%, a new high since February last year. Both figures were higher than expected. After the data was released, markets priced in a low likelihood that the Federal Reserve would raise interest rates again this year. The swaps market is fully pricing in the Fed’s 25 basis point interest rate cut being brought forward to May from June next year. The U.S. ISM non-manufacturing PMI recorded 54.5 in August, a new high since February 2023. Recently, Federal Reserve officials have released intensive hawkish signals, believing that U.S. consumer demand and the overall economy are still strong, inflation may remain high for a long time, and the U.S. dollar index continues to strengthen, limiting the room for further rebound in oil prices.
Summarize
On the cost side, Saudi Arabia and Russia extended production cuts beyond expectations, forming a strong bottom support for oil prices. However, excessively high oil prices may cause inflation and high interest rates to remain high for a long time, delaying the Federal Reserve’s interest rate cut time and inhibiting the upside of oil prices.
On the demand side, autumn and winter fabrics continue to be stocked, and polyester and weaving operations remain at a high level. The cash flow of polyester has weakened recently, but the inventory of polyester products is neutral and still declining. The impact of the Asian Games on downstream and terminal construction in September-October may be limited. The polyester load is expected to remain around 90% in September. higher level. New polyester production capacity continues to be released, and polyester yarn exports are good, which is good for PTA demand.
On the supply side, PTA equipment maintenance plans increased in September, but there are still uncertainties in some maintenance plans, and early maintenance equipment is expected to restart, so the impact of the actual new maintenance volume may be limited. The price difference between domestic and foreign prices has been repaired, and coupled with the impact of India’s BIS certification, the monthly export volume of PTA has dropped to about 250,000 tons. With both supply and demand falling, PTA is expected to maintain a loose balance in September, and there is limited room for repairing poor spot processing of PTA.
Taken together, the demand for the gold, silver and silver peak seasons is gradually realized, and there is also strong support on the cost side. However, PTA supply and demand remain loosely balanced, and spot liquidity is relatively abundant. After this round of rise, PTA futures prices will enter a high and volatile stage, and more favorable drivers will be needed to continue the upward trend.
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